Planning to Leave Canada: Moving from Canada to another country can be an exciting journey. However, this transition involves important financial considerations that can significantly impact your life abroad. In this guide, we’ll cover essential financial steps, from taxes to investments and banking, to help ensure a smooth move and minimize potential complications.
Planning to Leave Canada?
Leaving Canada involves thorough financial planning, from taxes and investments to healthcare and insurance. By addressing these aspects early and consulting financial experts where needed, you can make your transition smoother and more financially secure. With proper preparation, your move abroad can be a positive new chapter without unexpected financial setbacks.
| Aspect | Details |
|---|---|
| Exit Tax | Known as “departure tax,” this applies to certain assets you “dispose” of upon leaving. Canada Revenue Agency (CRA) guide |
| Investments | TFSAs can’t be contributed to once non-resident; RRSP withdrawals are subject to non-resident withholding tax. |
| Real Estate | Capital gains tax applies to property sold after leaving, and renting property may trigger additional tax obligations. |
| Banking and Currency Exchange | Consider setting up international banking; look into currency exchange services for better rates. |
| Health and Insurance | Secure international health insurance coverage before departure for uninterrupted health access in your new location. |
Departure Tax: Preparing for the Financial Exit
One of the primary financial obligations when one leave Canada is the departure tax, also known as a “deemed disposition” tax. When you emigrate, the Canada Revenue Agency (CRA) views certain assets as if they’ve been sold at their fair market value, potentially creating capital gains that are taxable. This applies to a range of properties, such as shares, investments, and collectibles, with exceptions for Canadian real estate and retirement savings accounts like RRSPs and TFSAs.
To minimize tax obligations, you should complete Form T1161 if the total fair market value of these properties is over $25,000, with failure to submit resulting in penalties. Properly calculating and declaring the value of your assets is crucial to avoid unexpected tax liabilities later on.
Managing Your Canadian Investments
Registered Retirement Savings Plan (RRSP)
While you can keep your RRSP after you leave Canada, withdrawals made as a non-resident are subject to a non-resident withholding tax. This tax rate can vary depending on the tax treaty between Canada and your new country, so it’s worth consulting a tax professional or CRA’s treaty guidelines to understand your potential liabilities.
Tax-Free Savings Account (TFSA)
As a non-resident, you won’t be able to contribute to your TFSA, and future earnings in the account might not retain their tax-free status, depending on your destination country’s tax regulations. Extracting any funds tax-free before departure might be advantageous, as managing a TFSA abroad can complicate tax filings.
Real Estate Considerations
If you own property in Canada, you’ll need to decide whether to sell, keep, or rent it out. Each option comes with unique tax implications:
- Selling Your Property: Selling before departure can help avoid the complexities of non-resident capital gains taxes. However, if sold post-departure, you may still be subject to a 25% withholding tax, necessitating a compliance certificate under section 116 of the Income Tax Act.
- Renting Out Your Property: Renting your property requires filing Form NR6 to enable taxes on the net rental income, instead of a blanket 25% withholding on gross income.
Since each case varies, speak with a real estate and tax specialist to tailor a strategy that maximizes benefits.
Banking and Currency Exchange
Maintaining banking accessibility is crucial when living abroad. Some Canadian banks allow non-residents to keep accounts, but fees or restrictions may apply. Opening a bank account in your new country early on can simplify international transfers, potentially saving you from high foreign transaction fees.
Currency Exchange Tips:
- Use specialized currency exchange services rather than traditional banks for competitive rates and fewer fees.
- Consider locking in exchange rates on large sums for stability amid currency fluctuations.
Health Insurance: Prioritize International Coverage
Canadian healthcare benefits are limited outside Canada, so obtaining international health insurance is a must. Many international plans cover basic needs and emergency medical services globally. Review policies carefully and compare premiums, benefits, and coverage to ensure the plan meets your healthcare requirements.
Tax Filing as a Non-Resident
Reporting Requirements
After emigrating, you’ll only be required to report Canadian-source income, such as pensions, rental income, and Canadian investments. Be sure to inform Canadian institutions of your non-resident status, so they can apply the correct withholding tax.
Tax Return for Departure Year
For the year of your departure, you’ll file a final tax return in Canada, reporting your worldwide income for the time you were a resident. Declaring your departure date on this return is essential, as it delineates your tax obligations between Canada and your new country. Additionally, if you qualify as a “short-term resident” (having lived in Canada for 60 months or less in the past 10 years), certain assets might be exempt from the departure tax.
Retirement Considerations: CPP and OAS Abroad
Canadian retirement benefits, including the Canada Pension Plan (CPP) and Old Age Security (OAS), can still be received while living abroad. However, your eligibility for some benefits may change:
- CPP: Payable worldwide, but tax withholding may apply depending on your new residency status.
- OAS: Only available outside Canada if you have lived in Canada for at least 20 years after the age of 18.
Research any tax treaties between Canada and your new home, as these agreements can impact tax rates and benefits eligibility.
Practical Steps to Take Before Planning to Leave Canada
1. Finalize Your Finances
Close any unused accounts, repay outstanding debts, and review investments to determine what’s best kept or liquidated before departure.
2. Notify CRA and Financial Institutions
Inform the CRA and any Canadian financial institutions of your emigration date and new address. Doing so ensures that tax deductions and credits no longer apply and helps avoid future complications with benefits and tax filings.
3. Maintain Accurate Records
Keep records of essential documents such as the date of departure, proof of residency in your new country, and the CRA’s confirmation of your change in residency status.
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Frequently Asked Questions (FAQs)
1. Do I have to pay tax on my Canadian property after I leave?
If you sell or rent out your property, you may face taxes based on non-resident withholding rules. Properly filed compliance certificates and tax returns can reduce tax rates on rental or sale income.
2. Can I keep my Canadian bank account while living abroad?
Yes, though some banks charge fees or impose restrictions for non-residents. Alternatively, opening a local account in your new country might simplify transactions.
3. How is my TFSA impacted by leaving Canada?
You can’t make new contributions as a non-resident, and the tax-free growth might not apply depending on your new country’s tax laws.
4. Will I still receive CPP and OAS payments if I live abroad?
Yes, but tax withholdings or eligibility adjustments may apply based on bilateral tax agreements with Canada.
